Am I Allowed to Cancel My Auto Insurance Policy?

Posted on July 13, 2017

You entered into an auto insurance policy that lasts the standard one-year period. Problem is, you started to compare rates from other providers after a few months and decided you want out of your contract. Is it too late, or can you cancel your existing policy?

The short answer is yes - you are allowed to cancel your auto insurance policy. However, after you take a look at the fees you'll have to pay in order to do so, you might feel differently about wanting to cancel in the first place.

Cancelling an auto insurance policy is a tricky task. In order to do it smoothly and without getting stuck in a dangerous trap of fees and penalties, you'll have to get the timing and execution just right.

Here are some questions you should ask yourself when evaluating the decision of whether or not to cancel an auto insurance policy.

Why am I thinking about cancelling?

Are you unsatisfied with your current policy? Unable to pay the fees? Getting a new vehicle? Done with driving altogether?

Answering that overarching question will give you a sense of not only whether or not you should proceed, but also how eager you are to do it. Perhaps this reveals that you're just a little bit frustrated with some small aspect of it, but not actually all that serious about cancelling.

Has the cooling-off period ended?

This only applies to policyholders during their initial period of having the insurance. A cooling-off period is a time in which people can cancel without suffering any monetary consequences (except perhaps a small administrative fee).

It is highly likely that your auto insurance policy will have at least a 14-day cooling-off period. Although this isn't much in the grand scheme of things, it's at least a nice easy way out if you rush into a policy and realize you've made a mistake.

Is my policy pro-rate or short-rate?

This is a crucial distinction. In the event of a cancellation, a pro-rate policy will give you a full refund for all of the time you're choosing to forego. A short-rate policy will not. You'll be charged for some amount, either the remainder of the policy or some shortened time frame of it. Withholding the last two months' worth of payment from the policy is a common practice.

A pro-rate policy will give you a lot more flexibility in terms of when you can cancel and not suffer for it financially. This is where things go back to the question of why you're cancelling in the first place. If the answer is time sensitive, then you better hope your policy is pro-rate. Otherwise, it might be best to wait until just before renewal, when you'll waste the least of it.

What kind of fees/penalties are associated with cancellation?

In addition to whether or not you'll have to pay out the life of your policy's term, it's important to find out what kind of separate fees and penalties are associated with cancellation. When separate fees do apply—and chances are they will—they are usually designated as administrative or handling costs. These could be anywhere from dozens to hundreds of dollars, depending on your policy.

Do I have a replacement policy in place?

Auto insurance is mandatory in Canada. This means that if you cancel a policy and don't have a replacement that kicks in right away, you'll be unable to legally drive.

The only possible exception to this is if your previous policy has some sort of grace period, which covers you for a short amount of time after the agreed-upon period has expired. However, this is a dangerous thing to bank on having. If you are cancelling a policy, you should set things up so that there is some overlap between your old and new policies, and that it is as minimal as possible.

Keep in mind that a new policy may come with its own activation fee, so having to pay that should factor into your decision as well of whether or not cancellation is right for you.